Non-executive directors cannot escape vicarious liability if company makes sub-standard medicines: Madras High Court

The Madras High Court recently held that non-executive directors of a pharma company cannot escape liability when the company is found to have engaged in manufacturing and supplying substandard drugs [Vikas Rambal vs The Drugs Inspector]..In an order passed on October 12, Justice G Jayachandran of Madras High Court said that the decision to manufacture something is taken by the entire board of directors of a company. Therefore, accused persons cannot escape legal action by saying that they were not involved with the day to day operations of the company. The Court said that the principle of vicarious liability will be applied to all the accused in the case.."The offences and the offenders in the case of this nature is manufacturing and distribution of sub-standard drugs by a company which is managed by its board of directors. The decision to manufacture the drugs is the collective decision of the board of directors. Therefore, the directors cannot claim that they are not directly involved in the product of the drugs, when the decision to produce the drugs itself is the out come of their decision. Therefore, the case of directors signing the cheque on behalf the company and the case of directors participating in the decision to produce sub-standard drugs are not one and the same to hold that these petitioners are not involved in day-to-day affairs of the Company," the High Court said. The Court, therefore, refused to quash a criminal complaint and the subsequent summons issued to a private pharma company and four of its directors for allegedly manufacturing and supplying substandard drugs to a government hospital in Tamil Nadu..The court was hearing a petition filed by four directors of a pharma company. The directors were accused of producing substandard thyroid medicine, Carbimazole Tablets, and supplying them to a medical store in government hospital in Tiruppur district in Tamil Nadu. They were booked under Section 34 of the Drugs and Cosmetic Act.Three of the four accused directors told the court that they were non-executive directors, who merely signed the cheques of the company and had nothing to do with its day to day work. They said that only the fourth accused, the executive Director Samir Garud, was responsible for the production and supply of products. They thus, sought that the case against them and the summons issued to them by the local Judicial Magistrate be quashed. .The Tamil Nadu government, however, argued that the directors could not claim that they were not directly involved in the production of drugs, when the decision to produce the drugs was the outcome of a joint decision of the board. It was the State's contention that when an offence is committed against the society at large, all the directors who benefited out of the said act of crime ought to be prosecuted and they are all vicariously liable. .The Court said the primary question to be considered was whether the non-executive directors could "wriggle out from the criminal liability" on the ground that they were not directly involved in the production of sub-standard Pharma products? It took note of the government's submission that as long as the accused had their names in the list of the board of directors of the company, all the directors will be vicariously liable whether they had knowledge of the crime or were directly involved in the crime. "This Court, on considering the facts of the case in the light of the judgments discussed above holds that the contention of the petitioners is wholly unsustainable. If the said preposition is accepted it will go against the object and reasons of the legislations namely Drugs and Cosmetics Act," the Court said.Senior counsel B Kumar and advocate Kiruthika Gokulakrishnan appeared for the petitioners.Government advocate NS Suganthan appeared for the respondents..[Read Order]